Herhold: Examine that water pipe insurance pitch carefully

A few weeks ago, a blue card with the San Jose Water Co.'s logo arrived at my house, addressed to a daughter who hasn't lived at home for six years.

The card was hyping the services of a company called Home Emergency Insurance Solutions, which was offering to insure my outside water pipes for the bargain-basement price of $4.95 a month.

It seemed to have the endorsement of San Jose Water. "Many customers are not aware that the exterior water service line -- typically from the water meter to the residence -- is the homeowner's responsibility," it informed me.

I have to admit that I have not spent a lot of time pondering the issue. But over the next few weeks, I got several emails from readers asking me to look into the company.

Home Emergency Insurance Solutions, a division of a company called HomeServe, has had a few rough years.

At one point, it even had a "C" grade from the Connecticut Better Business Bureau. A spokesman for the Oregon state Department of Justice said it appeared that the company was selling a service that people didn't really need.

In late November 2011, the company agreed to pay a $75,000 fine in Massachusetts because it sent out solicitations that gave the impression they were bills from a utility.

HomeServe has raised its grade recently: It gets an A- from the Better Business Bureau. And it claims a 97 percent satisfaction rating from customers.

Arithmetic

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But there are still reasons for examining its pitch carefully. First, there's the inconvenient truth of arithmetic. According to the company's own statistics, exterior water pipe failure occurs in less than 1 percent of American households every year.

Statistically speaking, if I put away the $60 every year that they want to charge me for insurance, the chances are that I'd be able to cover the average bill for replacing my pipes ($2,300) well before they broke. (OK, this is statistics, not real life).

Then there's the matter of exclusions: The policy doesn't include "pre-existing damage, the relocation of water lines, or lines improperly installed by someone else."

In the case of an "unsafe condition," the company won't repair the lines until the site is considered safe. It won't cover damage resulting from insects, abuse, negligence, theft, war or military unrest.

Strict reading

I've give them war and military unrest. But a strict reading of the other exclusions might leave a fair amount of repairs uncovered.

Myles Meehan, a spokesman for HomeServe, points out that the company provides the contractors to do the work, thus offering considerable piece of mind.

"The exclusions look pretty onerous, but we do most of the work anyway," he said.

Though San Jose Water stresses that Home Emergency Insurance Solutions is an independent company and the coverage is optional, utilities stand to profit from its sales.

The Alameda County Water District, for instance, receives 10 percent of the insurance company's monthly revenues. San Jose Water declined to reveal its share.

The bottom line? You should read the fine print before you sign up. You might even ask your insurance agent. Me? I'm glad it was sent to a daughter who no longer lives at home.